NEW YORK — The stock market notched its best gain in 3 1/2 months Wednesday as a second straight day of falling oil prices led Wall Street to shake off troubling new data on inflation.
The Dow Jones industrial average soared nearly 300 points, with investors piling back into many of the financial stocks they had shunned in recent days.
The pullback in oil raised hope that the upward pressure on food, gasoline and other consumer prices would moderate in coming weeks and provide much-needed relief to the economy -- and American consumers.
"The biggest driver is we had two down days in a row in energy prices," said Art Hogan, chief market strategist at Jefferies & Co. "To get a pullback in energy prices, and a significant pullback, is really positive."
Two days after suffering one of their worst-ever declines, financial stocks surged in part on unexpectedly strong results and a surprise dividend increase from Wells Fargo & Co., the biggest banking company on the West Coast. Wells Fargo shares rose by 33%.
A closely watched bank-stock index leaped 17%, with the shares of major banking companies bounding with the vigor of Internet highfliers during the technology-stock boom. Bank of America jumped 22%, Citigroup was up 13% and beleaguered Washington Mutual bounced 25%.
However, analysts cautioned that the rally could be short-lived.
"The concern is if it's just a one-day wonder," said Steven Goldman, chief market strategist at Weedon & Co.
Government figures released Wednesday still point to a grim economy, starting with inflation.
Fueled by higher gasoline prices, the cost of consumer goods barreled ahead in the last 12 months at their fastest pace in 17 years, the Labor Department said Wednesday.
Year-over-year prices were up 5%, or twice the level the Federal Reserve prefers. They rose a higher-than-expected 1.1% in June, the sharpest monthly increase since Hurricane Katrina in 2005.
The core inflation rate, which excludes volatile food and energy prices, popped up 0.3%, also more than economists had projected.
Stocks rallied anyway as investors had braced for the worst, experts said. And they hoped that oil would keep falling and lighten inflation later in the year.
That provides little help for consumers who already are struggling with higher costs.
Gas prices rose 10.1% in June while food and beverage costs were up 0.7%.
